First Horizon Corp (FHN) 2014 Q4 法說會逐字稿

Good morning and welcome to the First Horizon National Corp.

fourth-quarter earnings conference call.

(Operator Instructions).

Please note this event is being recorded.

I would now like to turn the conference over to Aarti Bowman.

Please go ahead.

Thank you, Amy.

Please note that the earnings release, financial supplement, and slide presentation we'll use in this call this morning are posted on the investor relations section of our website at www.firsthorizon.com.

In this call, we will mention forward-looking and non-GAAP information.

Actual results may differ from the forward-looking information for a number of reasons, outlined in our earnings announcement materials and our most annual and quarterly reports.

Our forward-looking statements reflect our views today and we're not obligated to update them.

The non-GAAP information is identified as such in our earnings announcement materials and in the slide presentation for this call and is reconciled to GAAP information in those materials.

Also, please remember that this webcast on our website is the only authorized record of this call.

This morning's speakers include our CEO, Bryan Jordan, and our CFO, BJ Losch.

Additionally, our Chief Credit Officer, Susan Springfield, will be available with Bryan and BJ for questions.

I will now turn it over to Bryan.

Thanks, Aarti.

Good morning, everyone, and thank you for joining our call.

I'm very pleased with what we accomplished in 2014 and I'm optimistic about our prospects for further progress in 2015.

Last year, we profitably grew our balance sheet by increasing loans in the bank and ended the year with a strong pipeline.

We reduced expenses and improved efficiency, while continuing to invest in our core businesses.

We made significant headway towards putting legacy issues behind us by reaching a settlement with Freddie Mac by resolving the FHFA litigation, reducing nonstrategic loans, and selling mortgage servicing.

We continued to return capital to shareholders.

We repurchased 3 million common shares in 2014.

Since 2011, we've bought back 31 million shares, reflecting an 11% share count reduction.

We have acquired bank branches in Tennessee, adding $440 million of deposits, and agreed to acquire TrustAtlantic Bank in North Carolina.

We also just announced that we increased our annual dividend rate by 20%, from $0.20 per share to $0.24 per share.

I feel good about our positioning as we kick off 2015.

We are seeing moderate, but steady, growth in our markets and believe that we are set to take additional profitable market share while maintaining loan quality.

Year over year, the regional bank grew average loans 10%, despite strong competition.

Our specialty lending areas drove the growth, with private client wealth loans up 10%, asset-based lending increased 15%, and commercial real estate lending up 31%.

Our efforts in our growth markets are paying off as well, with mid-Atlantic loans up 25% and middle Tennessee up 10%.

At FTN Financial, average daily fixed income revenues were steady, compared to fourth-quarter 2014, and are likely to stay in this general range until market conditions improve.

In 2015, we remain committed to cost containment.

As I said previously, we want expense control to be embedded in our culture and not just targeted amounts for efficiency goals.

There are still opportunities to reduce our expense base, which BJ will have additional comments on in a few minutes.

As to credit quality, nonperforming assets and charge-offs were down a respective 33% and 28% year over year and trends continue to be favorable.

Economic profit was a major theme for us in 2014 and will remain so in 2015.

We have educated our bankers on the importance of making profitable relationship-oriented loans and have rolled out tools and databases to help employees measure RAROC and economic profit.

We believe our emphasis on economic profit will benefit our returns going forward and help us achieve our long-term bonefish targets.

I will now turn the call over to BJ for more financial details about the quarter, and then I will be back for some closing comments.

BJ?

Thanks, Bryan.

I will start on slide 8.

For the fourth quarter, net income available to common was $46 million or $0.20 a share, compared with the third quarter's $45 million or $0.19 a share.

I know this is going to surprise you, but there were no notable items or one-times in the quarter, so we certainly hope this helps lighten your analysis load on us a bit this quarter.

Net income available to common for the full-year 2014 was $213 million, compared to $24 million in 2013, and our full-year EPS was $0.90 in 2014 versus $0.10 in 2013.

Slide 9 shows our segment highlights, but let's skip right to slide 10 and discuss the core business results.

First, the regional banks' net income was $50 million in the fourth quarter, relatively flat to third quarter's level, but up 16% from a year ago.

Pretax pre-provision net revenue grew 3% linked quarter and was up 20% year over year.

Linked-quarter net interest income in the bank was up 2% and up 8% year over year, driven by continued strong loan growth.

Non-interest income was flat linked quarter, as we saw increases in deposit transaction fees, trust services, and bank card income that were somewhat offset by decreases in brokerage and other service fees.

Year-over-year fee income growth was around 3%, with strength in brokerage trust and bank card in particular.

While expenses in the bank efficiency ratio were relatively stable linked quarter, the efficiency ratio in the bank has improved more than 400 basis points versus fourth quarter of last year, to around 62%.

Loan-loss provision was just under $6 million in the fourth quarter, compared to a little over $2 million in the third.

The increase was driven by loan growth in the commercial portfolios and a modest rebalancing of reserves, primarily to our commercial real estate portfolio.

Turning to slide 11, we will look at the regional bank balance-sheet trends.

Linked-quarter average loans in the bank were up 2% and up 10% year over year.

We continue to see good growth in our specialty lending areas.

Linked quarter, we had a 5% increase in average loans in asset-based lending, reflecting both an improved utilization rate on existing lines and new customer growth.

Commercial real estate grew 5%, driven by increases in the REIT sector and growth in property types such as assisted living facilities, retail, and industrial.

We also continue to see CRE borrowers funding up committed lines.

In fourth quarter of 2014, loans to mortgage companies were relatively flat to 3Q 2014 levels, with average balances of around $900 million.

From a market perspective linked quarter, we saw strength in our mid-Atlantic market, which was up 3%, east Tennessee increased loans by 2%, and middle Tennessee posted 1% growth.

Pricing and underwriting trends do remain competitive across our markets and lines of business, yet as Bryan discussed earlier, our bankers are focused on improving economic profitability and risk-adjusted returns on capital to strengthen our balance sheet.

We should continue to see strong growth in our specialty lending areas and expansion markets, such as mid-Atlantic and Houston, and although the lending environment remains highly competitive, generally we believe customers remain cautiously optimistic and our pipelines remain strong.

Turning to FTN and the fixed-income business on slide 12, we saw net income of $4 million in the fourth quarter, up from $3 million in the third.

As anticipated, fourth quarter was in line with third quarter and we were seasonally down during the holiday season.

Fixed-income average daily revenue was at $630,000 in the fourth, compared with $644,000 in the third.

Expenses declined 4% linked quarter, due to lower variable compensation.

For the first half of the year in 2015, we expect to see continued lower fixed-income activity because of the challenging market condition from low rates, low volatility, and a flatter yield curve.

Turning to slide 13, let's look at the balance sheet and margin trends.

Average total assets were slightly up from last quarter at $25 billion.

Linked quarter, average loans were up 1% and core deposits grew 8%.

As discussed a few minutes ago, our net interest income was flat to prior quarter as we saw good loan growth and loan fee collection, along with lower deposit costs.

However, our net interest margin was down.

You'll recall that on the third-quarter call we discussed that the net interest margin would come down in the fourth, primarily due to anticipated excess cash, and that's exactly what we experienced.

The consolidated net interest margin declined 11 basis points to 2.86%, with virtually all of the margin decline driven by our excess liquidity position.

First, a good bit of it was the high-class problem of strong customer deposit gathering.

Fourth quarter's deposit growth included inflow from commercial customers, the addition of $440 million of core deposits from our recent branch acquisition, and higher insured network deposits.

Also, you will recall that last November we issued $400 million of senior debt at the Bank to replace a maturity that we paid off just last week, so we carried those excess proceeds for the last 45 days or so.

All of this activity, even with strong loan growth, caused period-end interest-bearing cash levels to go to about $1.6 billion for the quarter, up from $275 million in the third.

Again, commercial loans and lower deposit costs were positive and did mitigate some of the NIM increase -- excuse me, decrease.

Looking ahead to the first quarter, we expect consolidated net interest margin to decline again for largely the same reasons, until we can smartly put these excess funds to work, in addition to normal fourth-quarter to first-quarter seasonality in the NIM that we usually experience.

So as we sit here today, we expect the first-quarter NIM to be at abnormally low levels from that excess cash, in addition to lower day count impacts.

However, while the NIM may be lower, we expect to see steady to maybe modestly lower NII.

Again, we do not believe the first-quarter 2015 NIM will be representative of the remainder of the year.

We expect it to increase after the first quarter as the excess cash is put to work.

You can see our balance sheet remains highly asset sensitive and we are prepared for increases in short rates and will stand to meaningfully benefit from that type of movement.

While a flattening of the long end is not helpful to either our NII or the fixed-income business, the benefit of increases in the short end of the curve more than offset pressure from the flattening on the long end.

Turning to expenses on slide 14, you will see the successful execution of our efficiency efforts.

Since 4Q 2011, our annualized expenses, excluding mortgage repurchase and legal costs, have declined 21%.

We've reduced costs in numerous areas, such as compensation, credit, and nonstrategic expenses.

As Bryan talked about, cost control will continue to be a priority for us in 2015.

As you know, we still plan to eliminate another $20 million to $50 million of expenses over the next couple years.

We have ongoing efficiency initiatives and also plan on reinvesting in the business in revenue-producing growth areas, such as middle Tennessee, the Carolinas, Houston, and our wealth management business.

As a result, we expect that the pace of net cost reductions will likely flatten compared to previous years, but we will still continue to look for additional efficiency opportunities.

Turning to asset quality on slide 15, linked-quarter trends were generally stable to improved, and in the fourth quarter, net charge-offs remained low and an annualized 30 basis points of average loans, or $12 million, compared to $11 million in the third quarter.

Linked quarter, our nonperforming assets decreased 6% to $242 million and the loan-loss reserve decreased 3%.

Our allowance to loans stands at 143 basis points.

Overall, we continue to be very pleased with our credit quality and frontline discipline and expect that to continue.

Wrapping up on slides 16 and 17, for the fourth quarter our core ROTCE was 10.4%, compared to consolidated ROTCE of 8.7%.

We are making progress towards our bonefish targets as the strength of our core businesses improve and the nonstrategic segment continues to run off.

As you know, a rate rise would be positively impactful to our profitability, but in the meantime, we will focus on controlling what we can control to enhance our returns.

That's continued efficiency efforts, the ongoing wind-down of the nonstrategic portfolio, growth opportunities in new markets and products, focus on economic profit enhancement, increase fixed-income activity, as well as capital deployment.

Back to you, Bryan.

Thank you, BJ.

I am pleased with the successful execution of our priorities in 2014 and I expect continued momentum in 2015.

Overall, we are broadly optimistic.

We anticipate this year's operating environment to be somewhat better than last year's with the economy steadily improving.

We're fully prepared to capitalize on opportunities provided by an improving economy.

Over the next year, we will continue to strengthen our balance sheet, manage expenses, wind down the nonstrategic business, and improve our economic profitability.

We should make ongoing progress towards achieving our bonefish targets and building franchise value.

Finally, thank you to our First Horizon people for all that you do to help us serve our customers so well.

Amy, with that, we will now take questions.

(Operator Instructions).

Steven Alexopoulos, JPMorgan.

I want to start on expenses.

Thus far, you guys have been one of the few banks that actually cuts dollars of expense, not just trims the growth rate of expenses.

With that said, less than $140 million now of annualized expense in the fourth quarter.

Is there more room to drive the level of expense down again in 2015?

Steve, it's BJ.

Yes, we believe so.

Like I said, we have got $20 million to $50 million of efficiencies we are working on, and like we have done in prior years, that won't be the end of what we do.

We've tried to build a culture of expense discipline and continuous improvement here, so we're going to constantly look for things.

The steep decline in what we have seen in terms of net expense reductions of 21% over the last three years, there is a law of diminishing returns after a while.

We will continue to look for net reductions and we believe we can get that, but we have also got a lot of good things going on that will produce revenue, like what I talked about -- additional investment in middle Tennessee, mid-Atlantic, and the Carolinas in particular, our wealth management business, things like that.

So we had a lot drop to the bottom line before.

We still think we will have more drop to the bottom line, but some more of it will be offset by growth initiatives we have, as well.

Steve, this is Bryan.

I will piggyback on BJ's comment.

In my earlier comments, I talked about the cultural nature of expenses, and I'm very, very pleased with what organizationally I see in terms of the way our folks are approaching expenses.

I think the expense efficiencies that we will gain over the next couple of years are likely to be through their hard work in analyzing the financial tools that we've laid out in terms of profitability, looking at end-to-end processes.

And I actually believe that to be a much better way for us to continue to approach expenses.

Setting targets and setting those targets in such a way that we go into silos and ask -- because Susan is in the room -- say we want to reduce a little bit more in credit or we want to go to finance and say, BJ, reduce a little bit more in finance is not the right way to approach it.

We need to do it in a way that helps us from end to end in our processes and allows us to continue to provide high-level, high-quality, and differentiated service to our customers and do it in a way that makes sense for building the business long term.

To reiterate what BJ said, yes, we see additional opportunities to reduce expenses over the next couple of years.

It gets more difficult, but we do see those opportunities, and like we have in the past, we will continue to invest in the business and build the franchise for the long term.

Okay, that's helpful, Bryan.

Appreciate that commentary.

Maybe to shift gears, I wanted to ask a question on the nonstrategic segment, which generally continues to help earnings rate.

It was $0.02 this quarter, about the same as last quarter.

Can you help us think about the wind-down of the remaining businesses?

Should it just be very gradual?

Are you looking at options to more quickly exit some of the remaining businesses or portfolios?

Thanks.

Steve, it's BJ.

You obviously know that over the last couple quarters -- well, second and third quarter, we did do some loan sales out of the portfolio, which helped us.

We had some significant gains there.

The rest of the portfolio is largely consumer HELOCs and installment loans.

There are a couple hundred million dollars of trust preferred whole loans that are there and will probably be there for a while, but it's mostly the consumer real estate.

We would certainly be open to looking at ways to accelerate that, either through various ways that we could do internally or look for things externally, like we have done before.

But if you look in the back of the slide book, you can see over the last two quarters that the CPR on the consumer real estate portfolio has ticked up pretty substantially over -- I think it was 22% last quarter, 25% this quarter.

That was up from maybe mid-teens several quarters ago.

So with the long end coming down, I think people have seen more opportunity to refi away.

That's certainly helped the reduction in our portfolio.

We expect to probably see more of that, and as we have talked about before, we are not particularly active in trying to keep those balances on our balance sheet, so we're happy to see them go.

But with that said, in a rising rate environment we are looking for plenty of ways to match fund or core fund that portfolio as well so that we might take a little bit more advantage of the asset sensitivity inherent in it as much as we can.

There's lots of things that we are looking at to do, but we feel like it's well managed.

It's got great credit quality, it has made us a modest amount of money, and we feel comfortable with it.

Okay.

Just one technical question.

BJ, the tax rate, was there any one-time items in there in the fourth quarter or is 19.5% a reasonable rate going forward?

Thanks.

No, there were some permanent tax credits and some reserve reversals that came through in the quarter, so that was a little bit lower than what we would normally expect.

Going into 2015, I would suggest that you should probably think about a 30% effective tax rate, something like that, but this quarter was a little bit light with those permanent credits.

Okay, thanks for all the color.

Emlen Harmon, Jefferies.

BJ, just could you walk us through the plan for deploying that liquidity build-up in the quarter?

Obviously, debt redemption will consume a portion of that.

But for the remainder, is the plan to wait for loan growth or do you have a plan to do something different in the interim or the medium term?

We are still working through what would be the smartest way to do it.

There are plenty of ways.

Certainly, loan growth would be the most advantageous for us, and so we are looking at what our forecasts are for loan growth and we think that will certainly be part of it.

We are looking at our capital and debt instruments that we have to see if there is any opportunity for us to retire those attractively.

That could be a possibility.

Buying securities is extremely challenging right now as we can see in our fixed-income business and we certainly see in our securities portfolio.

But we are looking at that as well.

There are plenty of things that we are looking at, but what I alluded to in my comments was we will smartly do it.

We are essentially parking that cash today at the Fed and making 24, 25 basis points on it, so it is earning a little bit.

But it's not earning nearly enough.

So we will be smart about it, but hopefully we can get through most of it in the first quarter and maybe leak a little bit into the second.

Got it.

If I look at just the average interest-bearing cash, that was actually up about, call it, $800 million versus the $1.6 billion end of period.

If we think about the first-quarter margin, does that mean you may have a little bit more leak there in your abnormally low NIM guide for the first quarter?

Yes, yes, that's right.

We don't want you to be surprised with a NIM that maybe has a 2.7 something on it, because that could certainly happen in the first quarter, but again, as I talked about, the margin might look low because of that excess cash, but our NII should be relatively stable to maybe modestly down.

I would keep more of an eye on the NII until we work through the excess cash.

Got you.

Just one quick one on middle Tennessee, loans there up 10% on a year-over-year basis.

You have talked about addressing that market differently going forward.

Is it still possible to see an acceleration of growth there or is that 10% what you were hoping for or what you are hoping to get out of that market?

Emlen, this is Bryan.

Yes, I think there is still additional acceleration that we will see there.

We have put a lot of energy into that market over the last couple of years.

We have made, I think, very good progress this year.

We have actually gone through a leadership transition with Doyle Rippee, who is retiring, and Carol Yochem, who has taken over the market and is providing really good leadership.

We have attracted some very, very talented individuals that we think will make a significant difference for us in that marketplace.

I am very optimistic that we will see an acceleration in 2015, 2016, and beyond.

I think we've got great opportunities in middle Tennessee.

Got it.

Thanks, guys.

Ebrahim Poonawala, Bank of America Merrill Lynch.

I guess first question, just in terms of the investment side of the expense equation [mainly] to reinvest in the franchise.

I was wondering, Bryan, if there is a specific plan in terms of the X number of branches that you want to open in the Carolinas or middle Tennessee or hiring of lenders over the next six to 12 months, if there is any color that you can add in terms of where those investment dollars are going to go on the banking and maybe even the capital market side?

We don't have -- let me start with the branches.

We don't have any broad-based plans to have a net increase in the number of branches.

In all likelihood, we would continue to see a net consolidation of branches.

What we are referring to are the types of investments that we have made over the last several years where we have invested in technology and platforms, whether it be our sales and service platforms, whether it be our relationship management platforms, or even the technology required to produce economic profitability at the customer or the relationship level.

We're not expecting anything off pattern in terms of investment in the business.

We are really just nodding to or acknowledging the fact that at some point, the ability to continue to make the significant kinds of reductions that we have made over the last couple of years gets harder and that incremental progress is likely to still be achieved, but we are going to continue to focus on investing in the business for the long term and making sure that, as I said earlier, that we have a franchise that is delivering that differentiated customer service to our customer base.

Understood, and then just a separate question on the mortgage company loans.

Other banks have talked about benefit from low rates helping activity there, more recently on the refi side.

Also, the purchase side is getting better.

Just wondering if you had any thoughts in terms of how those balances should look vis-a-vis the first half of last year, and it seemed like the balance [load] was seasonally closed up pretty strong at the end of the year.

Any color on that, BJ, would be helpful.

Sure, yes, the average balances were relatively flat from third quarter to fourth quarter, but there was -- there were pretty good peaks in there.

For going into the end of the year, the balances were well over $1 billion.

Probably now, today, they're in the $800 million range, but with the long end falling, we think a replenishment of that pipeline is coming, so we could see some modestly higher balances in the first quarter and we would probably anticipate that in the business, so that's positive.

The other is we have seen, as you might imagine, a shift in our pipeline to more refi versus purchase.

I think we had been running most of last year at a 70% purchase, 30% refi.

We're probably more 55%/45% purchase/refi right now and probably continue to move more to refi.

So we're fairly optimistic at least over the next few months that we could see higher balances there.

If I can sneak in one last question, just in terms of the capital markets pretax income, is there anything outside of the overall rate environment changing or the increase in volatility that could lead to growth in terms of pretax contribution from that business, or not?

This is Bryan again.

In short order, the thing that will move the needle the fastest will clearly be a pickup in fixed-income activity, and the volatility this week and last week with the moves that the EU made in terms of quantitative easing and even the de-linking of the Swiss franc has increased volatility, and so those things have been reasonably good for the business.

Now two weeks is not a trend, but those are the things that will move it fast.

In the longer term, the work that the FTN team, Mike Kisber and the team, are putting in place to build out our capabilities around municipal finance and building those businesses will not only change the mix of the business, but we think they will give us greater opportunity to grow the revenue base there.

We are working on a lot of fronts, but clearly the most effective in the short run is going to be greater volatility in the fixed-income markets that leads to more fixed-income sales and market making.

Marty Mosby, Vining Sparks.

I wanted to ask a little bit of a technical question on capital ratio, and then also on interest rate sensitivity.

But on capital ratios, your Tier 1 common ratio is improving, but you are being able to pull down your tangible common equity, which is really the more important when you start looking at returns.

How are you efficiently managing between those two ratios?

It seems like you are doing a real good job of effectively deploying capital in a way that will be productive.

Yes, the tangible common equity I think this quarter was from a few different areas.

The intangibles were actually larger because of our branch acquisition, so that was one thing.

Movement in the discount rate and the pension liability was another.

And then, the modest amount of share repurchases that we did in the quarter, obviously actually above tangible book value, had a modest impact on that.

I wish I could say I was really smart and figured out a great way to do that, but this quarter it was a little bit more of those technical details that drove it.

I was trying to give you a little credit.

Appreciate that.

I want to talk about the yield curve impact that you show on page 13.

Basically what you are saying is a flattening of the yield curve would offset about 25% of your rate sensitivity.

What point of the yield curve are you applying when you are looking at the flattening there?

Is it farther out, or where is the sensitivity there?

On which part?

I am sorry, Marty.

On page 13, you talk about the long end going down, impacting you by about $9 million?

Yes, it's more in the five-year range is what we look at.

We don't have a ton of long-dated assets that are beyond that.

It's mostly in that five range.

What if you looked in the two- to three-year range, would it be a little bit more sensitive?

I am trying to think of where it becomes -- the elasticity begins to increase a little bit more?

Yes, a majority of our durations on the balance sheet on the loan side would be in the probably three- to four-year range, so anything in that range would be most sensitive.

But as you can see if you just do a simple extrapolation, we are much more levered towards movement in the short rates than we are even in the three to five plus area, so on balance if the Fed does start to move rates, we are going to be a net beneficiary of that move.

Matt Burnell, Wells Fargo.

Thanks for taking my question.

Bryan, a question for you.

You mentioned a couple of times in your comments the capital return and share repurchases that you have done over the last couple of years.

This year -- or 2014's capital returns, at least in terms of buybacks, were back-end loaded.

It looks like to us you had about a 45% to 50% payout ratio.

Obviously, you just announced a higher dividend, but you have also said in the past that in a low rate environment, you would think about capital returns up to 100% of earnings.

Just trying to get a sense as to how you are thinking about that going forward into 2015 and 2016.

Our thinking, Matt, really hasn't changed an awful lot in that regard.

We still think that we will in all likelihood be returning substantially all of our capital in the buyback and the dividend programs.

Obviously, you noted the increase in the dividend because we do think it's important to reward our long-term shareholders.

Mechanically, as you pointed out, we did have it somewhat back-end loaded in 2014.

Some of that is because of what we described, say a year, 15 months ago, in terms of wanting to work through some of these mortgage-related issues.

Then with the announcement of the TrustAtlantic, we will be in a proxy solicitation, so there will be certain limits in terms of how much we can buy back while we're in that process.

But overall, we still would expect to repatriate substantially all of our earnings and maintain our capital levels by getting capital back in our shareholders' hands.

Okay, thank you.

Then a question, BJ, for you, I guess.

You are running at about 5% year-over-year loan growth.

It sounds like the pipelines are pretty good right now.

Can you give us a color as to the momentum in the pipelines and would you be willing to give us an outlook for loan growth, either into the first quarter or through 2015?

Sure, Matt, and Susan can jump in as well, but we have been very pleased, and I might even say pleasantly surprised, by the ability of our bankers to actually put fundings on the balance sheet and yet remain -- have the pipelines remain strong.

We have seen that over the last three quarters, and what our bankers will tell us is that the pipelines remain strong and we should continue to see good fundings.

We do see some seasonality from fourth to first that always seems to occur in terms of our fundings.

But we do believe that loan growth year over year, as we go through the year, can be pretty strong.

We saw 10% growth in the bank this year.

I'm not going to sit here and predict double-digit growth, but can we have strong growth like that or close to that?

Yes, I think we can.

We have seen good strength in commercial real estate where we have a lot of capacity from a balance-sheet perspective.

I think only 8% of our outstandings are in CRE, so that gives us a lot of dry powder, if you will, where others might not have as much.

That's good.

Carolinas has seen very strong growth.

Our asset-based lending business is seeing good utilization and new customer growth, as we talked about earlier.

So we're pretty positive on where we can see growth going forward into 2014.

This is Susan.

I would echo what BJ said.

We do continue to see our bankers doing a great job calling on existing customers, as well as prospects, in all of our markets.

We have seen, obviously, growth in our specialty areas and some of the growth markets, but we've also had success in our core, more seasoned markets in terms of further penetrating existing customers with both increased lines of credit lines, also treasury management, and so we are encouraged by that.

John Pancari, Evercore.

Regarding the margin in 2015, I know you expect -- you cited the impact you expect for the first quarter.

Can you give us a little bit more color on the pace of that rebound or that expansion that you cited coming out of first quarter and through the remainder of the year, and then what that means for the full-year 2015 margin?

Thanks.

Sure, John.

Like I said, I guess we are at 2.86% this quarter.

I could see something in the 2.70%s in the first quarter, but then I think it rebounds back towards where we were at this quarter.

Then depending on the timing of rate increases, I think it starts to climb pretty healthy from there.

Absent rate increases, I think it goes back to the levels that we are at in the fourth quarter.

In terms of 2015 margin, I would think in the 2.80% range, absent rate moves, would probably be a good area to think about.

Okay, all right.

Then separately on expenses, back to your $20 million to $50 million that you have cited in terms of efficiencies that you're still focusing on, can you just remind us -- I mean, do you expect that to ultimately come out of the run rate or do you expect a portion of it to be reinvested over time?

Then, separately, what do you think about the efficiency ratio as you look into full-year 2015?

Thanks.

I would hope that a good amount of the $20 million to $50 million over time would drop to the bottom line.

I think what you have seen from us over the last three years was a substantial amount of the expense reduction falling to the bottom line, which is good.

I would change my language to some or a good amount of the reduction falling to the bottom line now.

As Bryan talked about, as I talked about, it does get harder, and as we see growth opportunities, we want to continue to invest in good costs and so we will reinvest some of that over time.

I think the efficiency ratio in 2015, I would expect it to get better by a couple hundred basis points, I would hope.

We are doing a lot of good things on both the numerator and the denominator there, and so we will keep chipping away at it.

And a couple hundred basis points, I think, would be good next year, but we need to get it down a lot more than that and we will need a little bit more help from rates to really see a steeper improvement in new ratio.

Christopher Marinac, FIG Partners.

Bryan and BJ, I was curious on the TCE ratio.

As you look at decisions on buying back more shares or looking at other acquisitions or anything in between, is there a lower threshold where you don't want the TCE ratio to cross under?

Chris, it's BJ.

I think in a normalized environment, whatever that is, we think a TCE ratio in the 6.5% to 7% range would be very appropriate for a balance sheet and a business mix that we would have.

With stress test and binding constraints on stress tests in a severe adverse scenario, can we go down to the 6.5% range?

Maybe, maybe not.

But we've got plenty of excess capital today to be able to get down to that range.

That 6.5% to 7% TCE to TA implies a 8.5 to 9, a little over 9 Tier 1 common ratio, and again we think just operating normally that would be an optimal range for us to be in.

Okay, great.

Thank you for that color.

Bryan, given the new investment in Houston, is this a time where Houston could actually become a bigger opportunity for you, just given changes in energy, perhaps changes in other banks, interest level in the market there?

Yes, we're optimistic.

We think we have got great opportunities, and in the roughly nine, 10 months that we have been building the business there, we are seeing very good momentum.

We are seeing very good opportunities.

In fact, David Popwell was there yesterday and today, making customer calls with our team.

So we are seeing very good receptivity there.

It's a little too early to tell what the long-term impacts of lower oil and gas prices mean to the overall Houston economy.

Clearly in the oil and gas space, we are seeing capital investments reduced and that economy is likely to slow down some.

But given all of that, if you are a new participant in the market, you have got a wide open field.

We think there will be a number of great opportunities that we have an opportunity to look at, and we feel like we have the balance-sheet capacity and the appetite to be very proactive in booking those relationships.

Chris, this is Susan.

To add on what Bryan was saying, we actually think it's -- from a credit perspective, obviously, to have the correction in energy prices at this time, at the point in time we are entering the market, will be a good opportunity for us to go in and bank some of these great companies that are there.

We have hired bankers, as you know, with deep experience in relationships with both energy companies, C&I, CRE.

We believe that there are opportunities there and that we will be able to expand on those.

Ken Zerbe, Morgan Stanley.

I just want to go back to the reinvestment of the excess cash you guys have.

I heard you when you said you wanted to -- you were going to get most of that done by the end of first quarter, and you said loan growth is the best option, but I suspect you are probably not going to grow $1 billion of loans.

So unless you have any debt that you're going to retire that you're planning on, it seems like the only way you're going to really redeploy all this cash is by investing it into securities, which is probably, like you said, a tough choice right now, given low rates.

Am I wrong in assuming that most of this is going to go through into securities growth, and is that baked into your 2.80% NIM expectations for 2015?

Yes, yes, I don't think a lot of it is going to go into securities.

If I didn't say it as clearly as I should have before, I apologize.

Yes, there isn't a lot of buying opportunity in securities at levels the loan rates are at.

There could be places where we have opportunities to do that, but you won't see the securities portfolio grow meaningfully.

Debt retirement and capital instrument retirement, yes, we will look at all of that.

Could it be opportunities in our trading inventory at FTN?

We can certainly look at things like that.

Even though we are not a proprietary trader, carrying inventory for customer purposes in different areas, we could certainly look at.

All of that said, I would like to get most of this excess cash put to work by the end of the first quarter, but if we have to hold more excess cash because there is not an economic opportunity to put it to work, we will just send it back to the Fed and do it in a smart way, which might depress the NIM a little longer than I would want it to, but NII will be fine and we will be proud of the balance sheet going forward.

Ken, this is Bryan, I will pick up on BJ's comment.

It's hard to lay out completely because we are still working through it, and BJ has, I think, done a good job of laying out some of the alternatives.

You got to, I think, keep in perspective that this is the result of a high-class problem.

We saw very good, strong deposit growth and we're always great with deposit growth.

We want to see that, and so we are encouraged by it and we will figure out how to put the cash to work in a smart way.

We're not going to put the interest-rate sensitivity of the balance sheet at risk.

We are going to manage through it smartly, but it is the result of a high-class problem and we will continue to work through how we put that cash to work and be very smart, hopefully, about the way we do it.

Got it, understood.

Okay, and then just a really quick one on the capital markets.

I think you mentioned that you did see some increased ADR because of the market volatility.

Can you quantify that, what you have seen so far in January?

Yes, and I will go back to what I said earlier, too, before I do that.

You can't take two or three weeks and make a trend for a quarter.

But we did see it move back up a couple hundred thousand dollars a day above where it had been running in the fourth quarter.

We had a million-dollar week in there, but again I want to be very careful.

Two weeks is not a trend.

There are some unique events going on in the world.

They create volatility.

But it does underscore, in my view, the fundamental strength of the platform, that there is pent-up demand, that we have good calling efforts, and that when activity picks up, we are going to benefit very, very nicely from that activity.

It's a little better.

We will see where it plays out the rest of the quarter, and as we look into this year, we think it's in this area of where we have been in the fourth quarter for potentially all year, but we're optimistic that if things improve, we are going to benefit from that very nicely.

Eric Wasserstrom, Guggenheim Securities.

BJ, you have given a lot of very clear guidance and roadmap, but I just want to follow up on the issue of the first quarter because for NIM to be -- or for NII dollars, rather, to be more or less flat with the first quarter with a NIM that's down, let's say, another 10-ish kind of basis points would suggest some kind of resurgence in first-quarter loan growth, and yet some of the seasonality would argue for the opposite.

So I just want to make sure I am understanding all of the dynamics of what may be occurring on the balance sheet.

Sure, so excess cash, if that stays around -- we're earning 25 basis points on that when our net interest margin is 2.86%.

If you have got, let's say, $1 billion of that and earning assets of $20 billion, that's a material amount that is only earning a modest amount.

That is going to depress the NIM pretty good.

Where we do see -- the other piece in first quarter is going to be a lower day count, so those two will be the main drivers.

The positives that will occur is, as I alluded to earlier, I do see or hope that loans to mortgage companies could be better.

They carry higher yields, much higher yields, than our aggregate portfolio does, and so that will certainly be a mitigant in terms of net interest income.

Like I said, if you put all those things in the mix, NII flat to modestly down is something that I think is going to occur.

Thanks.

Just to follow up, could you give us a status update on TrustAtlantic and what -- if there has been any change to the expected closing date or conditions there?

Eric, this is Bryan.

We are in process.

The regulatory applications are in process.

We would expect to file the securities registration statements in the not-too-distant future.

Our timeline and expectation is that we would receive, hopefully, the requisite approvals by sometime in the second quarter and that we would close and begin the integration process sometime in the middle to late second quarter.

Okay, thanks very much.

This concludes the question-and-answer session.

I would like to turn the call back to Bryan Jordan for closing remarks.

All right, thank you all for joining us on our call this morning.

We appreciate your interest in our Company.

Please let us know if you have any additional questions or you need any additional information.

I hope you all have a great weekend.

Thank you again.

The conference is now concluded.

Thank you for attending today's presentation.

You may now disconnect.